A BIG STEP

E-commerce is one of today's hot topics, but most Fortune 1000 firms have been online with customers and suppliers for a decade or more via their own electronic data interchange networks.

Most of these systems have been reliable, but many companies are considering updating or replacing their networks with Internet-based commerce systems.

It's a big step. Most electronic data interchange (EDI) systems are private networks with dedicated software and limited access. A move to the Internet can be scary: The pool of link-ups becomes almost limitless overnight, and security breaches become an omnipresent fear.

What to do with EDI

Before taking the plunge into Internet commerce, many companies will have to figure out what to do with their older EDI networks. Some may incorporate them into new systems; some may decide they'd rather not switch at all.

"More and more companies are going global now, and they're finding that it isn't convenient to add partners in different parts of the world to their EDI," says Paul Evans, director of technology research for consultant A. T. Kearney Inc. in Washington, D.C. "The Internet gives companies more agility."

Experts are divided on EDI's fate. Some believe that all commerce eventually will evolve into Internet-based networks. Others argue that private EDI networks always will have a place in many corporate information system hierarchies.

Industries such as financial services and manufacturing have employed private networks for so long, they are likely to resist change.

"You may see banks moving to allow consumer online banking," says Brian Farrar, president of Metamor Technologies Ltd., a Chicago-based consulting firm. "But I don't think you'll see bank-to-bank transactions on the Internet. Banks have really good private networks, and they'll use them for critical functions like clearing checks."

Thus, parallel networks -- a private network for company-to-company transactions and a public network for consumer transactions -- are taking hold at some companies.

Niles-based Ha-Lo Industries Inc. recently posted its catalog of promotional gift products on the Internet. The company also relies on EDI to order products from a dozen of its biggest vendors. But Ha-Lo has close to 2,000 vendors in all, with the rest communicating via fax, phone and even mail.

"Many of these vendors are quite small and haven't embraced either EDI or the Internet," says Chief Information Officer Brad Kerr. Even so, he expects to keep the company's EDI, even if just 12 vendors are signed on to it. "I see no reason to switch to a public network," he says.

The added cost of an EDI hook-up may be a deterrent to its use. Once an initial network is created, the Internet offers practically free access to its users. But an EDI's dedicated lines can be expensive.

Chunka Mui, a partner with Chicago-based Diamond Technology Partners, says companies save substantially when they open their networks to the public.

For example, Memphis, Tenn.-based Federal Express Corp. once tracked packages on its own private network. When there was a problem, customers called a service representative at an average $2 per call. Then FedEx put all its package routing information on the Internet and allowed customers to perform their own searches. "The per-transaction tracking cost went down to a nickel," Mr. Mui says.

The Internet isn't for everyone. For manufacturers like General Motors Corp., the seamless ordering an EDI allows -- when paint runs low at an Indiana plant, electronic messages are sent automatically to Pittsburgh's PPG Industries Inc., and replenishment is soon on its way -- would be hard to beat.

"Systems like that are human-free. Do you think an Internet link could do any better? Probably not," says Andrew Parker, president and CEO of Naperville's Mercantec Inc., which designs e-commerce software.

Many manufacturers are likely to stay with their EDI networks for now, Mr. Parker and others agree. But some companies, faced with year 2000 compatibility issues that are forcing changes in hardware and software, are deciding that now is a good time to jump to the Internet.

What's the payoff?

Ultimately, the EDI vs. Internet debate boils down to the payoff. Each company must calculate the cost of conversion and balance it against new-found efficiencies, sales gains and cheaper transactions.

Wonderlic Personnel Test Inc. in Libertyville, which provides prescreening for job applicants for corporate clients, once sent most test results to clients via fax. Now, 70% are sent on the Internet, saving hours of manual transcription work. The firm has also posted a database of workers on the Internet, available to all clients on a subscription basis -- a new profit driver for Wonderlic.

"It cost us more than $1 million to put up an Internet network," says President Charlie Wonderlic. "But most of the cost is upfront. With increased revenues, we expect to get an exponential payback very quickly."

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